Accountable Digital Advertising Is Driving More Revenue for Media Companies

October 24th, 2007 Nurlan Urazbaev

Media owners say the share of revenue from advertising is increasing relative to revenue from ‘end-user spending’. MARKETINGWEB says half the media executives polled in Accenture’s Global Content Study 2007 said advertising, driven by growth in digital advertising, could become the most prevalent business model within five years.

Traditionally, media revenues have been split between end-user spending (65%) and revenue from advertising (35%). End-user spending is defined either as subscriptions to media or buying media off the shelf, reports MARKETINGWEB.

“Regarding analytics, one of the major benefits of digital advertising is its measurability, which allows advertisers to track impact and Return On Investment (ROI) for their spending. As such, expect to see a shift in the way  digital advertising is priced. While 39% of our respondents said that Cost Per Thousand (CPM) pricing would remain dominant, a combined 33% believe that Cost Per Transaction (CPT) and Cost Per Action (CPA) pricing would be more Important,” the researchers said.

The same trend was confirmed by Sir Martin Sorrell, CEO of the second-largest media communications group, WPP. Sydney Morning Herald quoted his speech  at the International Advertising Association lunch: ”Measurability was an area of increasing importance to clients, who were increasingly unwilling to pay for the rising cost of television”. He said that in five years he hoped to have half, instead of the present one-third, of his revenue from media that could be measured easily, such as internet advertising, and the tools that measured its effectiveness, writes Sydney Morning Herald.

According to MARKETINGWEB, Accenture’s Global Content Study 2007 surveyed more than 100 decision-makers in the media and entertainment sectors, including television, film, music, radio, video games, publishing interactive entertainment and advertising. It polled executives across North America, Europe and Asia-Pacific, to gauge their views of where the greatest opportunities and challenges will come over the next five years.

The previous year’s survey gave a different picture, with only 38% of respondents seeing advertising as a leading revenue stream. The researchers attributed the increase in optimism to the “strong traction that digital advertising has experienced, particularly in online”. The trend has been driven by the success of search-based advertising on the internet, which is complemented by video-based brand advertising.“The promise of this digital revenue format has been buoyed by major deals in the online space, including acquisitions such as Google and DoubleClick, Microsoft and aQuantive, Yahoo! and Right Media, Publicis and Digitas and WPP with 24/7 Real Media,” Accenture said.

I would add that for digital signage, which is an integral part of digital advertising, given its expansion in retail, such metrics as Cost Per Transaction (CPT) and Cost Per Action (CPA) will be be growing in importance compared to Cost Per Thousand Impressions (CPM).

Spend on advertising worldwide is estimated to be around US$500-billion, and is dominated by TV, newspapers and magazines.

Some traditional advertising executives fear that their skills might become redundant, as technology players dominate digital advertising, MARKETINGWEB says. Sir Martin Sorrell, chief executive of WPP and a respondent to the survey, labelled certain internet advertising providers as “frenemies” to traditional agencies. Thus they are seen as both “friend” and “enemy” to traditional media players.

According to Sydney Morning Herald, Mr. Sorrell described Google’s unique position as both a seller of services to WPP - the company buys $US450 million ($500 million) of “stuff” from Google each year - and a potential competitor for its media business by experimenting in selling newspaper inventory and setting up a creative services division to rival his advertising agencies such as JWT and Ogilvy & Mather.

“The biggest issue facing people in this room is the technology issue,” he said, describing Google as a “frenemy”. He pointed out that in just a few years Google’s market capitalisation had grown to four times that of the four main communications companies: WPP, Omnicom, Publicis and IPG.

He said Google’s proposed $US3.1 billion acquisition of the digital ad agency Double Click had prompted a rash of me-too purchases, including Microsoft’s $US6 billion takeover of the digital advertising and infrastructure group aQuantive and his own purchase for $US600 million of the search marketer 24/7 Real Media, Sydney Morning Herald wrote.

Describing another key trend, Martin Sorrell also pointed out that “the East” (Asia) posed even a bigger threat - or opportunity - to traditional agency business. “The thing that worries me is not what those PhDs are doing in Berkeley, Stanford or Harvard but at Beijing or Bangalore. I think we are about to see other things happen that we don’t even understand yet, emanating particularly from the eastern part of the world,” he said.

Wall Street Journal earlier this week quoted Mr. Sorrell as saying that, as part of his long-term strategy, WPP aims to increase its business in the fast-growing emerging markets to reduce reliance on the less-dynamic U.S. and Western Europe. He said WPP gets about a quarter of its $12 billion in annual revenue outside those markets and aims to raise that share to a third over the next five to 10 years.

Related topics: see the Digital Signage ROI category.

Entry Filed under: Digital Signage ROI, The Big Picture, Uncategorized